Chang Wing Ka John v. Chang Wing Dee and Another

CACV 47/2021, [2023] HKCA 876

On Appeal From [2021] HKCFI 47

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 47 OF 2021

(ON APPEAL FROM HCMP NO 1790 OF 2016 AND

HCMP NO 1791 OF 2016)

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HCMP 1790/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1790 OF 2016

___________________________________________

___________________________________________

______________________________________

AND

HCMP 1791/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1791 OF 2016

___________________________________________

___________________________________________

___________________________________________

___________________

J U D G M E N T

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Hon Yuen JA:

Introduction

1.1.  HCMP1791/2016 is concerned with the estate of Chang Yin Ching (“the Father”) who died in Canada on 3 February 1999.  He was a successful businessman.  HCMP 1790/2016 is concerned with the estate of his wife, Tsui Yuen Ying (“the Mother”) who also died in Canada, on 8 September 1999.  They were both domiciled in Hong Kong. 

1.2.  In both proceedings,

-  the Applicant is their elder son Chang Wing Ka John (“John”), who has long resided in Canada;

-  the 1^st Respondent is their younger son Chang Wing Dee (“WD”), who has always resided in Hong Kong; and

-  the 2^nd Respondent is their daughter Hu Esther Yung May (“Esther”), who has resided in both Canada and Hong Kong.

(They are referred to collectively as “the Siblings”).

1.3.  The couple had another daughter Yvonne who predeceased them.  Yvonne was survived by 2 sons who have not featured in these proceedings[1].

1.4.  On 14 July 2016, John commenced the 2 sets of proceedings (which were subsequently consolidated):

-  to remove WD as the administrator of both estates in Hong Kong and for an order that two accountants be appointed in his place,

-  alternatively, for an order for due and proper administration of the estates,

-  and in any event, for an order that WD make an affirmation exhibiting an inventory and account of the assets of the estates, supported by vouched particulars.

1.5.  Esther and WD counterclaimed[2] for orders that:

-  John be removed as trustee of certain real properties in Canada owned by the Mother for whose benefit John had made a Declaration of Trust dated 4 March 1999 (“the Canadian trust”), and for WD to be appointed in his place;

-  it be determined whether the parties had agreed by a Mediation Agreement dated 6 March 2009 (“the Med Agrmt”) that WD be appointed as the administrator of the parents’ estates in Canada;

-  professional or forensic accountants be appointed to prepare final accounts of both estates, with valuations to be performed by valuers; and

-  the estates be distributed on the basis of such final accounts.

2.1.             After a 7-day hearing during which all the parties were cross-examined on their affidavits or affirmations, DHCJ To (“the judge”) gave a 114-page Judgment on 11 January 2021 (“the Judgment”)[3] 

in which he:

(1)  dismissed John’s applications[4],

(2)  removed John as trustee of the Canadian trust and appointed WD in his place[5];

(3)  adjudicated that the parties had agreed to appoint WD as administrator of the parents’ estates in Canada and in Hong Kong[6];

(4)  ordered that professional accountants and valuers be appointed for the purpose of finalizing the accounts of the estates[7];

(5)  ordered that there be distribution of the estates based on the final accounts[8];

(6)  ordered that WD open a trust account and deposit John’s entitlements therein pending distribution[9];

(7)  made an order nisi that John forthwith pay Esther and WD’s costs of both sets of proceedings on an indemnity basis, with certificate for 2 counsel, and that Esther and WD be at liberty to recover such costs out of John’s share in the estates.

2.2.  There was no stay of the order. 

3.1.  On 5 February 2021, John lodged the present appeal.  In the Notice of Appeal, as an alternative to the orders sought in the main grounds of appeal, he seeks specific directions relating to:

(a)  2 Promissory Notes dated 15 June 1993 and 9 February 1995 respectively[10], and

(b)  3 units in the Sundial building, Vancouver (“Units 501-503 Sundial”)[11]

which were referred to in the Judgment and which will be discussed below.

3.2.  Esther and WD did not file any Respondent’s Notice.    

Parties before the court

4.1.  When the hearing of this appeal commenced, the court was concerned with the question whether the Secretary for Justice (“SJ”) should have been made a party to the proceedings in light of O.120 r.4 Rules of the High Court, relating to charitable trusts. 

4.2.  As both Mr Smith SC (leading counsel[12] for John) and Mr CY Li SC (leading counsel[13] for Esther and WD) agreed with our concern, an adjournment for half a day was sought and given, during which the parties’ solicitors were able to retrieve certain documents (“the Retrieved documents”). 

4.3.  After perusing the Retrieved documents, the court was satisfied that we could safely proceed with the appeal without the SJ being made a party.  Nevertheless, for the record, we would briefly summarize how our concern arose.

5.1.  In §72 of the Judgment, the judge had referred to certain evidence relating to the Father’s “wills and codicil” which John had once claimed provided for a portion of the Father’s estate to be left to charity.

5.2.  The “wills and codicil” referred to a Chinese document dated 3 January 1995 signed by the Father and witnessed by 2 persons, supplemented by 2 further Chinese documents dated 30 September 1996 and 30 June 1997.  As these have not been propounded as a will and codicils, we shall refer to the Chinese document as “the Father’s 1995 document”, “Father’s 1996 document” and “the Father’s 1997 document” respectively.

5.3.  To put it neutrally, certain passages in those documents contained text which, it might be argued, expressed an intention to benefit charitable purposes. 

6.1.  In 2001, Esther and WD commenced probate proceedings (HCAP3/2001 and HCAP4/2001) regarding their parents’ estates, with John as defendant.  The pleadings in these proceedings were not provided in the bundles for this appeal. 

6.2.  On 4 January 2001, Esther and WD together with 2 BVI companies and WD’s wife, also commenced HCA48/2001, with the parents’ estates and John as defendants.  In that action, the plaintiffs pleaded that the Father died intestate[14]. In John’s Amended Defence, he pleaded that the Father “died leaving a will ... providing ... that all the father’s estate be donated to charities through a family foundation”[15].  This was denied by the plaintiffs in their Reply[16].

6.3.  HCAP3/2001, HCAP4/2001 and HCA48/2001 are referred to as “the 3 sets of proceedings”.

6.4.  It appears from the Retrieved documents that:

-  on 2 December 2003, John’s then solicitors wrote to the Department of Justice (“DoJ”) enclosing the Father’s 1995 document and the pleadings in the 3 sets of proceedings, inviting the SJ to “participate in all these 3 actions as the interest of charities is an issue”;

-  on 2 January 2004, the DoJ replied saying “the central issue of the cases is on the existence of any valid will (as opposed to letter of wishes)” of the Father, said that “at this stage, we do not consider it appropriate for the Secretary for Justice to take part in the proceedings”, but “reserved the right to apply joining in all or any of the above actions in the event that a valid will be proved in due course”.

6.5.  However, the 3 sets of proceedings did not go to trial. 

6.6.  On 6 March 2009, the Med Agrmt was signed between Esther and WD of the one part, and John of the other part.  There were 12 clauses.  Clause 1 provided that the assets would be distributed only after (among other things) “Department of Justice ... clearance”.  Clause 2 provided that the parties agreed to assign US$4 million to charitable purposes out of the pool of assets in specified proportions. 

6.7.  As for the 3 sets of proceedings, the Retrieved documents show that on 5 October 2009, Lam J (as he then was) directed that the parties report to the court on their progress. 

6.8.  On 12 November 2009, the DoJ wrote to the then solicitors for Esther and WD.  It is notable that in that letter, the DoJ said the “Probate Actions have already been settled”.  On 19 November 2009, the DoJ wrote again to the then solicitors for Esther and WD (copied to John’s then solicitors as well as the court) saying that it would not be appropriate for it to participate in hearings concerning non-charitable aspects of the 3 sets of proceedings.  That was as far as the Retrieved documents went.

6.9.  Apparently, when the present HCMP proceedings were commenced in 2016, none of the parties informed the DoJ.  However, it is clear from the Retrieved documents that irrespective of the terms of the Father’s 1995 document, the SJ does not need to be made a party in these proceedings for the following reasons.

6.10.  As shown in the Retrieved documents, the DoJ had earlier been provided with the Father’s 1995 document, so it was aware of its terms.  Originally, the DoJ was content to let that document be litigated between the children.  However, even when the children settled the Probate Actions (as the DoJ’s letter dated 12 November 2009 showed it knew), the SJ did not intervene to be made a party.  If the SJ was of the view that the Father’s 1995 document contained a gift (of whatever nature) to charitable purposes, he should have intervened as a party to advance that contention in 2009.  He did not do so. 

7.It is not open to the court to find any trust charitable if the SJ refuses to so contend[17].  Accordingly, this court must take it that the SJ has decided not to contend that a charitable trust was established in the Father’s 1995 document.  As such, the SJ has no interest in the estates and their administration, and he is not a necessary party to these proceedings.

The Mediation Agreement

8.Returning to the factual narrative, as mentioned above, the parties signed the Med Agrmt on 6 March 2009.  Parts had been added in handwriting.  It may be convenient to summarize here the passages that are material to this appeal.

9.The recitals included the following:

“(3) The parties have instigated legal actions against each other[18] in Hong Kong and Canada in relation to matters arising from the estates of their Father and Mother and other family assets.

(4) The parties intend to use mediation to resolve all their disputes in the past and to agree to a settlement of all the family assets including but not limiting to the properties under the estates of the Father and Mother ... Canadian Properties[19], Hong Kong Properties hereinafter mentioned”. (Emphasis added).

10.Clause 1 stated that “the parties agree in principle to divide all the family assets into 3 equal shares after assessing the pool of assets ... The distribution of assets will take place only after the court approval, Yvonne’s 2 sons consent, Department of Justice & estate duty clearance & all payments of reasonable expenses ...”.  (Emphasis added)

Clause 2 stated that US$4 million would be assigned to charitable purposes in specified proportions.

Clause 3 stated that Yvonne’s 2 sons would be paid US$1 million each out of the pool of assets if they give consent to the family arrangement that the parties have agreed[20].

Clause 4 stated:

“The parties agree to full disclosure of all information in respect of the accounts under the pool of assets as soon as practicable and in any event not later than 30^th June 2009. The parties agree to perform the following acts and to exchange the information in the following manner:

(a) John will discharge the outstanding mortgage at his expense on Properties I as mentioned in the schedule of the list of Canadian properties (hereinafter referred to as ‘Schedule A) attached hereto and to provide to Wing Dee and Esther, a set of statement of accounts in respect of all the properties under Schedule ‘A’ hereto from time of death of the Father and Mother to the present. The statement of accounts will show all items of income & expenditure of the Canadian Properties under Schedule ‘A’ and John will be accountable as trustee to & from the pool of assets.

(b) Wing Dee and Esther will provide to John a set of statement of accounts in respect of all the properties and bank accounts of the pool of assets under their control in the past from the time of death of the Father and Mother up to the present. The statements of accounts will show the flow of funds & [Esther and WD] will be accountable to & from the pool of assets.

(c) The statement of accounts will have to be certified by a qualified account (sic) upon request of the other party. The costs incurred in certifying the accounts will come from the pool of assets”. (Emphasis added).

Schedule A contained 3 lists comprising a total of 13 units:

-  “Properties I”:      8 units in a Toronto building;

-  “Properties II”:     1 unit (101) in the Sundial building; 

-  “Properties III”:    4 other units in the Sundial building.

Units 501-503 Sundial were not referred to in the Schedule.

Clause 7 stated (where material) that “the parties agree to distribute the Canadian Properties under Schedule A in the following manner” and to execute documents and take such actions as necessary:

(a)  John would “take up” 3 units (801, 707, 905) in the Toronto building;

(b)  Esther would “take up” 3 units (803, 705, 706) in the Toronto building;

(c)  Wing Dee would “take up” the remaining 2 units in the Toronto building, and unit 101 Sundial;

(d)  John would “take up” WD’s shares of the 4 other units in Sundial, and WD would be paid by John “individually”.

(f)  The parties agreed that the Canadian Properties “will be managed in the same manner until final distribution of the pool of assets”. 

Clause 8 stated the parties’ agreement on the distribution of Hong Kong properties, with John taking over WD’s share of the parents’ family home, and Esther and WD taking over John’s share in Majestic Fashion Knits Ltd (“Majestic”) a company controlled by the Father which the judge found was the Father’s alter ego[21].   

Clause 9 stated that the parties agreed that WD “will be appointed the official Administrator of the estates of the Father and the Mother as soon as practicable”.

Clause 10 stated that the parties agreed to use mediation in the future.

Clause 11 stated that “all Canadian legal proceedings will be stayed forever.  All parties will not claim against each other in respect of the current litigation after distribution of the pool of assets ...”.

Clause 12 stated that WD would receive a sum of HK$8,740,980.86 from the pool of assets being moneys due by the pool of assets to him and that:

“save and except the transactions mentioned in this Mediation Agreement, all the loans due from the parties to the estates will be waived and not to be pursued”. (Emphasis added).

11.The Med Agrmt was made the subject of a Tomlin order made by Lam J in HCA48/2001 on 12 January 2010.  The parties returned to the court in that action on at least 2 later occasions (25 June 2010 and 29 November 2011) for the carrying of the order into effect. 

Letters of Administration

12.Pursuant to Clause 9 of the Med Agrmt,

-  on 30 December 2010, Letters of Administration (“LA”) of the Mother’s estate with Will annexed were granted to WD by the Probate Registry of Hong Kong; and

-  on 8 March 2011, LA of the Father’s estate were granted to WD by the Probate Registry of Hong Kong.

13.WD has not obtained LA of the parents’ estates in Canada.  It was a live issue whether (a) it had been agreed that he would do so and (b) whether John had obstructed him from doing so.   

Procedural observation

14.Six years after the Tomlin order was made, the present proceedings (HCMP1790/2016 and HCMP1791/2016) were commenced.

15.During these 6 years, the parties have accused one another of failing to comply with the terms of the Med Agrmt.  However, it is important to note that none of the parties has said that the Med Agrmt should be regarded as having been terminated by the other side’s breach, nor has any party asked for the Tomlin order to be set aside and the actions to be restored for hearing.

16.1.  The orders which both sides respectively seek have been set out in §1.4 and §1.5 above.  Conceptually, it can be said that both sides are asking the court to order the other side to perform the Med Agrmt (as per their respective cases), with some variations to some terms (replacement of WD as administrator, and replacement of John as trustee).  In 2010 and 2011, they had applied to the court in HCA48/2001 under the “liberty to apply” provision in the Tomlin order.  However that was not done in 2016 when these proceedings were commenced.

16.2.  Although Mr Smith raised this procedural point in his written submissions in this court[22], as Mr Li noted[23], it was Mr Smith’s side which had chosen to commence fresh proceedings, rather than proceed under the Tomlin order, and as it appears that the judge had not been asked to determine this point, we shall say no more about it.

Legal principles

17.The legal principles applicable in these proceedings are clear.  In respect of removal of an administrator, both sides were content to rely on the summary of legal principles in §§157 - 160 of the Judgment:

“157. The applicable legal principles on removal of administrators are not in dispute. Section 33(3) of the Probate and Administration Ordinance (Cap 10) gives the court power to remove administrators. The section provides:

“The court may, if satisfied that the due and proper administration of the estate and the interests of the persons beneficially entitled thereto so require, suspend or remove an executor or administrator (other than the Official Administrator) and provide for the succession of another person in place of such executor or administrator and for the vesting in that other person of any property belonging to the estate.”

158. The overriding consideration for the court is the welfare of the beneficiaries. In deciding whether to remove a personal representative, the proper question to ask is whether for that end the removal is necessary for the due and proper administration of the estate: see Chow Chak Kiu v Chow Man Chit. It is not every mistake or neglect of duty, or inaccuracy of conduct of trustees, which will induce the court to remove the office of a personal representative. The acts or omissions must be such as to endanger the trust property or to show a want of honesty, or want of proper capacity to execute the duties, or a want of reasonable fidelity: see Thomas and Agnes Carvel Foundation v Carvel.

159. In exercising its discretion, the court should have regard to the size of the estate, the nature of the assets that need to be administered, the background and education, training and experience of the remaining and substituted personal representatives and the interests of the beneficiaries: see Wong Tat Lun Eddie & Ors v Wong Chi Ho Jimmy & Ors. The view of the majority beneficiaries is a relevant factor: see Chan Yu Hong v Chan Kam Hong. The discretion is to be exercised with great caution and sparingly. In general, removal of a representative is not to be preferred unless the administration is still far from completion:Chan Yu Hong. The courts are reluctant to exercise the discretion where the incumbent executor or administrator wishes to carry on, without allowing that incumbent an opportunity to repair or remedy any defects and progress promptly with due administration. The fact that administration of the estate could have been done better is not of itself sufficient ground:Wong Tat Lun Eddie & Ors. Hostility between the trustee and beneficiaries as such is not a ground for removal of the trustee, unless the breakdown of relations between them is such as to lead to the administration coming to a standstill, or makes it difficult or impossible for the administration to be completed by an existing personal representative: Chan Sau Heung v Kwan Siu Fai; Re Estate of Kwan Chung; Jones v Firkin-Flood.

160. Common examples where the court has exercised its power of removal of administrators are: inactivity for years as in Re Lam Choi Hing Billy; failure to render a full and proper account despite repeated request while adopting a dilatory attitude in distributing funds of the estate as in Re Estate of Lee Da Kor; risk of misappropriation of the estate’s property by reason of the personal representatives’ drug addiction as in Re Estate of Yuen Wing Sum; misappropriation of the estate’s property and repeated failure to follow court’s order as in Chow Chak Kiu v Chow Man Chit.”

18.It may be added that in principle, where there are a number of beneficiaries, some of whom[24] are content with the administrator and one[25] is not, the view of the majority is a relevant factor[26], but the hostility between the administrator and the discontented beneficiary, or that beneficiary’s lack of confidence in the administrator, should be considered against the backdrop of what the administrator has done, or failed to do, in his conduct of the administration.  That is because the overriding consideration is whether the administration of the estate is being properly carried out.

19.As for removal of a trustee, both sides were content to rely on the summary of legal principles in §216-217 of the Judgment:

“216.  The legal principles applicable to removal of trustee are trite and not in dispute.  The court has power under section 42 of the Trustee Ordinance (Cap. 29) to appoint a new trustee for a trust either in substitution or in addition to any existing trustee or trustees (i) whenever it is expedient to do so and (ii) that it is found inexpedient, difficult or impracticable to do so without assistance of the court.  The hurdle is a high one.  The court has to be satisfied of the two prong test that it is expedient to do so and inexpedient to do so without assistance of the court.

217.  For a trustee to be replaced, actual misconduct on the part of the trustee need not be shown, but the Court must be satisfied that his continuance in office would be prejudicial to the due performance of the trust or impede the effectual execution of the trusts, and so adversely affect the interests of the beneficiaries: The Ban Khi & Ors v The Loei Beng & Ors. In deciding whether to exercise its discretion to appoint a new trustee, the court will take into account the following factors:-

(a)   the wishes of the person by whom the trust was created;

(b)   the interests, which may be conflicting, of all the beneficiaries; and

(c)   the efficient administration of the trust, and whether the appointment would promote or impede the execution of the trust.

See: The Ban Khi & Ors.”

20.This appeal turns on the application of those legal principles to the evidence. 

The issues

21.The more important issues, in light of the alternative orders that John seeks in the Notice of Appeal, are (a) the two promissory notes and (b) Units 501-503.

(A)  Two Promissory Notes

- The 1^st Promissory Note (15.6.1993)

22.1.  On 15 June 1993, a letter on Majestic letter paper (“the 1^st Promissory Note”) was signed by the Father as part of the corporate signature of that company.  The letter was addressed to “Mr John Chang/Ms Juanita Farnsworth”.  Ms Farnsworth was John’s wife[27]. Although the body of the letter was addressed to “Mr John Chang” only, and the capacity in which Ms Farnsworth signed it is not shown, Mr Smith accepted that it “indicated that CAD170,000 was to be repaid by John and John’s wife”[28].

22.2.  The letter stated, where material:

“Dear Mr John Chang,

As per your request I agree to lend you the sum of One hundred Seventy thousand Dollars in Canadian Currency (CAD$170,000.00) at interest 9% per annum for 6 months and renewed every six months at interest subject to mutual agreement.

The term of this loan to you is not fixed. If no advice of termination is given from either party to the other, it may be continued in effect for another term of 6 months automatically without restriction until advice to the contrary arised (sic) from either party.

Your redemption of the sum whole or in part at any time with accrued interest paid will be acceptable”.

22.3.  Pausing here, it would be noted that:

-  the judge found that Majestic was the Father’s alter ego, so in effect this was a loan from the Father to John and Ms Farnsworth[29];

-  generally, if two persons make a promissory note, a release of one maker discharges the instrument, unless there has been a reservation of rights in the release[30]. Accordingly, if John has been discharged from liability on this promissory note, the same would apply to Ms Farnsworth. 

- The 2^nd Promissory Note (9.2.1995)

23.1.  On 9 February 1995, a document entitled “Promissory Note” (“the 2^nd Promissory Note”) was signed by John as “President” and Ms Farnsworth as “Treasurer” for “2810743 Canada Inc”, a company which John owned[31].  It was addressed to the Father and stated:

“$486,000 (CDN)

For value received, the undersigned promise to pay Mr Y.C. Chang the sum of four hundred and eighty six thousand dollars Canadian, together with interest from May 1, 1992 at floating market rates, both before and after default, until paid in full”. (Emphasis added)

23.2.  Pausing here, on the face of the document, the maker was 2810743 Canada Inc and John and Ms Farnsworth signed as part of the company’s corporate signature.

24.John’s evidence was that the sums referred to in the 1^st Promissory Note and the 2^nd Promissory Note were transferred by the Father to him in June 1993 and April 1992 respectively, and that both sums were giftsfrom the Father to him[32].

25.1.  These promissory notes had been known to Esther and WD for some time, as they had pleaded them in HCA48/2001[33]. 

25.2.  As far as the Med Agrmt was concerned, Clause12 stated that “save and except the transactions mentioned in this Mediation Agreement, all the loans due from the parties to the estates will be waived and not to be pursued” (emphasis added).  As neither promissory note was mentioned in the Med Agrmt, any sums due from John to the estates have been waived.  The issue was what was the effect of the Med Agrmt on Ms Farnsworth, 2810743 Canada Inc, and Majestic, who were not parties to the Med Agrmt.  Pausing here, it is notable that under Clause 8 of the Med Agrmt, Esther and WD would take over John’s share of Majestic.

- Esther’s email (17.4.2009)       

26.1.  On 17 April 2009, 1 month after the Med Agrmt was signed (and 9 months before the parties came to court for the Tomlin order), Esther sent an email (“Esther’s email”) to John’s former solicitor only, which contained the following passages:

“I feel John is very restless with the two promissory notes. Maybe you can tell him, there is not need to ask for the original copies, as long as the paragraph 12 is clear and specific, it will override the originals. I have written to John to seek your suggestions.

I am sending this just to you only. After you read this, it would be your idea and not mine.

Maybe you already have that in mind, then excuse me for my redundancy. You just need to convince John not to worry about these promissory notes.

What I really want to point out is all three parties (John, Juanita and 2810743 Canada Inc.) will be excused of their liabilities to the two loans.

...

It is not a change of the mediation agreement, but a clarification of Paragraph 12 of the mediation agreement.

The parties mentioned in Paragraph 12 of the mediation agreements (sic) are parties involved in the two promissory notes they are John Chang, Juanita Farnsworth, and 2810743 Canada Inc.

To be specific, it should also mention that the two promissory notes.

1. from Majestic Fashion Knits LTD to John Chang and Juanita Farnsworth amount of 170,000 CND. Signed on June 15, 1993.

2. from [the Father] to the number company 2810743 Canada Inc. amount of 486,000 CND. Signed on February 9, 1995.

The above 2 loans due from all three parties (namely, John Chang, Juanita Farnsworth and 2810743 Canada Inc.) to [the Father] and Majestic Fashion Knits Ltd will be waived (for all three parties mentioned above) and never to be pursued any further by any parties mentioned in the promissory notes or their representatives as per this agreement.

According to Wing Dee, to dismiss the two promissory notes, we need to follow the proper legal procedures (ie meetings with the board of directors) for all parties concerned to agree and disallow claims of any kinds from all parties involved in the two promissory notes in the future. I would think the two promissory notes should be destroyed after the settlement of the mediation agreement. They should not be in anyone’s possession”. (Emphasis added).

26.2.  Pausing here, this email was sent after the Med Agrmt was signed, and as a matter of legal principle, it would not be admissible as an aid to interpret the written agreement (eg Clause12).

27.1.  However, it is contemporaneous documentary evidence which supports Esther’s oral evidence of WD’s position, because prior to sending the email:

-  she had discussed with him the “unresolved problems” arising out of the Med Agrmt, ie the 2 Promissory Notes “involved ... people who were not the parties to the mediation agreement”[34],

-  she asked WD how these problems could be resolved[35], and

-  according to WD, legal procedures such as company meetings should be followed so that all claims under the 2 Promissory Notes would be “disallowed”.

This led Esther to give the assurances in her email to John’s then solicitor.  

27.2.  That position was consistent with the recital[36] in the Med Agrmt of in effect, a global settlement.  Although Ms Farnsworth, 2810743 Canada Inc and Majestic were not parties to the Med Agrmt, neither were the 2 BVI companies[37] or WD’s wife who were parties to the previous proceedings.  It is not suggested that any of their claims remain extant after the Med Agrmt.  No difficulties regarding non-parties to the Med Agrmt were raised when the parties obtained the Tomlin order on 12 January 2010.

27.3.  Accordingly, it may be concluded that the intention of the Siblings was that the 2 Promissory Notes would not be pursued by Majestic against Ms Farnsworth and 2810743 Canada Inc as well.

- WD’s email (8.5.2010)

28.However, on 8 May 2010, WD wrote in an email to John (in answer to his request for the return of the promissory notes):

“1) the parties in the promissory notes are not the parties to the agreement, and also there are other parties involved in the promissory notes. We do not claim from you. It does not mean other beneficiaries will not claim from you and borrower. Even if you have the original it does not mean other parties cannot claim from the borrower”. (Emphasis added).

2) I did not have the letter of administration, so I do not have the power to give anything to anybody that belongs to the estate, one promissory note belong to father’s estate.

3) one promissory note belong to Majestic, we need to have shareholders meeting before we can do so, but since you give a lot of trouble and delay me to get the letter of administration, the share cannot be transfer to the shareholders, therefore we cannot have the shareholders meeting”.  (Emphasis added)

- Claim against John by “other beneficiaries”?

29.1.  First, it is evident from the above that WD was not claiming to have changed his position from that recorded in Esther’s email.  Indeed, in relation to para.1), it is evident that WD was affirming that “we do not claim from you”. 

29.2.  However, the email contained a new suggestion from WD that “other beneficiaries” may claim from John.  WD did not identify these “other beneficiaries”. 

29.3.  Insofar as WD meant beneficiaries of the estates of the parents, it was not suggested that Esther was intending to claim from John, and by then, Yvonne’s 2 sons had already consented to the agreement and received US$1 million each.  Whilst the Mother’s Will dated 12 May 1995 did name some persons other than the Siblings, they were only given relatively small pecuniary legacies and specific pieces of jewellery, not a share in the residuary estate.  In any event, as a matter of law, these beneficiaries could not make a claim directly against John and/or Ms Farnsworth and/or 2810743 Canada Inc.

29.4.  Insofar as WD meant Majestic making a claim, as the judge found that this company was the Father’s alter ego, any loan due from John to this company would be “waived” under Clause12 of the Med Agrmt.  Further, para. 3) of WD’s email suggested that it was only corporate procedure that was holding up the waiver (“we need to have shareholders meeting before we can do so”), not that Majestic (controlled by Esther and WD under the Med Agrmt) wished to pursue the promissory note against anyone. 

- Reason for not returning the promissory note

30.It is notable that in para.2) of the email, the only reason given for not returning the note in favour of the Father was that WD had not yet obtained the LA to his estate.  However, even after he obtained the LA on 8 March 2011, WD did not return it. 

- WD’s email (21.5.2012) 

31.1.  Further, WD’s position on the promissory notes changed in 2012.  On 21 May 2012, WD sent an email to John stating:

“Please be reminded that you and Ms Farnsworth has to return the money to the estate and Majestic Fashion Knits Ltd. If you divorce or deceased, your children and you might claim from me. So I have to ask you both and your No. Company [2810743 Canada Inc] to repay the loans and interest according to promissory notes now”.

31.2.  Pausing here, the email did not explain how, if either John or Ms Farnsworth died or divorced each other, their children or they might claim from WD.  Ms Farnsworth was never a beneficiary to either parent’s estate.  Some grandchildren were only given specific pecuniary legacies or jewellery. 

31.3.  In response, John emailed WD on 10 October 2012 asking why his children would claim from WD on the loans in the event of his death or divorce[38]. WD did not give an explanation, nor for his change in position in treating even John himself as liable for the promissory notes, notwithstanding Clause12 of the Med Agrmt and his position as disclosed in Esther’s email and his own email of 8.5.2010.[39]

- Deduction of total C$7,562,586.89 for the 2 Promissory Notes

32.1.  More seriously, on 22 October 2015, WD sent an email to John (“the Deductions email”)[40] in which WD disclosed that he had deducted from John’s share a total sum of C$7,562,586.89 as “your loans with interest up to 2015 are CAD6,487,823.95 and CAD1,074,762.94”.  These amounts, substantial on any view, were shown in 2 Excel tables containing WD’s calculations. 

32.2.  In the Excel table entitled “Interest calculation on loan repayment from (2810743 Canada Inc) to estate of [the Father]”[41], WD calculated the first sum (C$6,487,823.95) as “Canadian $486,000.00 [the 2^nd Promissory Note figure] from 1^st May 1992 at floating market rate (11%) until full repayment[42]”. 

32.3.  The table contained no explanation:

(a)  why the flat rate of 11% was described as “the floating market rate”:

when cross-examined, WD said “it was simply an estimate.  In due course when it was to be amended it would be easy”[43].  However, no amendments were ever made.

(b)  why the interest was compounded with monthly rests:

when cross-examined, WD said that this Promissory Note was signed in Canada, and the Canadian Inland Revenue compounds interest daily, although he knew it had nothing to do with the Inland Revenue[44].  He accepted that he had not previously provided such an explanation, or indeed any explanation.

32.4.  In another Excel table entitled “Interest calculation on loan repayment from Mr John Chang/Ms Juanita Farnsworth to Majestic Fashion Knits Ltd”, WD calculated the second sum (C$1,074,762.94) as C$170,000 [the 1^st Promissory Note figure] and interest at a flat rate of 9% from 16 June 1993. 

32.5.  Similarly, the table contained no explanation:

(a)  why the flat rate of 9% pa was used when the 1^st Promissory Note stated that interest would be “subject to mutual agreement” after the first 6 months;

(b)  why the interest was compounded with monthly rests.

In cross-examination, WD’s evidence was along the same lines as that for the other Promissory Note.

33.1.  John’s position below was that the amounts in the Promissory Notes were gifts from the Father, but if the judge did not accept that, then the loans had been waived under Clause12 of the Med Agrmt.

33.2.  It was submitted on behalf of John that WD’s treatment of the 2 Promissory Notes warranted WD’s removal as administrator by reason of:

-  conflict of interests, in that the deduction from John’s share of the amounts of the 2 Promissory Notes and the charge of compound interest would increase the pool of assets, distributable to WD (among others) WD;

-  incompetence; and

-  hostility.

34.Mr Li’s submission was that John was unable to provide a credible explanation why the Promissory Notes had not been expressly referred to in Clause12, and hence WD’s waiver argument “must therefore also be rejected”[45]. However, there was no Respondent’s Notice to this effect.      

- The judge’s findings

35.1.  At the hearing, the judge found that John had failed to prove that the sums referred to in the 2 Promissory Notes were gifts from the Father[46].

35.2.  However, the judge found that “a strict literal construction of Clause (12) is that any loans due from the parties to the estates in transactions not mentioned in the Mediation Agreement are waived”.  Whatever the liabilities of others not mentioned in the Med Agrmt, they would not be John’s, and so “WD was wrong to insist that the loans are repayable by John and to charge him interest”.  The judge went on to say “the mistake was not an unreasonable one for a layman to make”[47].

- Discussion

36.1.  With respect to the judge, the view in the last sentence was overly generous, as he had failed to take into account WD’s initial position as disclosed in Esther’s email which said:

“According to Wing Dee, to dismiss the two promissory notes, we need to follow the proper legal procedures (ie meetings with the board of directors) for all parties concerned to agree and disallow claims of any kinds from all parties involved in the two promissory notes in the future”.

WD did not challenge Esther’s record of his position then.  That clearly showed that WD was aware that any loan due from John to the estates was waived under Clause 12.  As for Ms Farnsworth and 2810743 Canada Inc, and Majestic, WD had told Esther that corporate procedures would need to be followed to effect the “disallowance” of claims under the Promissory Notes.

36.2.  It was thus clear that WD’s position then was that no claim would be made under the 2 Promissory Notes against John or Ms Farnsworth or 2810743 Canada Inc by the Father’s estate or Majestic, his alter ego company, which under the Med Agrmt was controlled by Esther and WD.

37.1.  The judge had failed to take this evidence into account when assuming that WD made the substantial deductions in 2015 as a “reasonable mistake” by a lay person. 

37.2.  Further, WD’s application of an unjustified rate and basis of interest, resulting in the substantial deduction of more than C$7.5 million, exacerbated the situation. The explanations he gave under cross-examination showed that his decision to make such substantial deductions was not properly considered as befits an administrator, let alone an administrator of substantial estates who had resources to obtain professional advice.    

37.3.  Having said that, the material consideration for this court is whether this act (together with others discussed below) warrants WD’s removal as administrator.

38.Before leaving this topic, as noted earlier, in the Notice of Appeal, John asked for an alternative order that “WD be directed not to pursue the 2 promissory notes, or deduct any sum from John’s share of the Estates in respect of the same, and to deliver up the two promissory notes for destruction”.  We will deal with this below. 

(B)  Units 501-503 Sundial

39.1.  The factual background regarding these units is as follows. 

39.2.  These units were purchased by John at a time when the parents were alive, and were sold (at a loss) in 2004, 5 years after the parents’ deaths in 1999, and 5 years before the Med Agrmt in 2009.  The judge found that Esther and WD “have neither first-hand information nor hearsay evidence from the Father about the ownership of these units or the funds for the purchase of these units”[48].

39.3.  It would appear from the documentary evidence (set out below) that some funds came from the Father, and the rest with bank finance. 

40.1.  On 27 August 1991, the Father wrote a letter to John in which (among other things) he asked:

“How will you deal with the money you owed to the Company and the money borrowed for the three units at 501-503? Please tell me”. (Emphasis added)

40.2.  Pausing there, the above indicates that the Father was only acting in the capacity of financier for the purchase, and John had not purchased the units on the Father’s behalf.

41.However, on 28 February 1995, the Father wrote:

“Please tell me when the loans for the properties in Toronto and Vancouver[49] can be repaid in full.

Under whose name are the deeds for Vancouver 501-503? I remember for tax reasons they are under your name and the money for payment of the properties are regarded as money you borrowed from me. Was there any IOU issued at that time? Please tell me”. (Emphasis added)

42.On 1 March 1995, John replied (among other things):

“The IOU for Vancouver 501-503 had been made for you, but if it is lost, will need to make one ...”. (Emphasis added)

The judge’s findings

43.1.  The judge placed particular emphasis on the Father’s reference to “tax reasons”. He found:

“Impliedly, the properties were held by John as legal owner under a resulting trust or constructive trust for the Father who provided the funds for their purchase. Treating the funds as loans was just part of the tax avoidance scheme. John has no dispute that the arrangement was a tax shelter. Thus, the funds were not truly loans”[50].

43.2.  The judge arrived at that conclusion as follows:

-  “His [John’s] silence [in response to the Father’s letter] may be treated as an acknowledgment that the units were purchased using the funds from the Father and held under his name for tax purposes.  The IOU was also generated for tax purposes”[51] (emphasis added).

-  “It is important that John did not say he contributed anything to the purchase price.  He said that the arrangement was a tax shelter. ... The tax shelter must be one for the very rich Father who provided the funds and not John. Thus, the Father was their beneficial owner”[52]. (Emphasis added)

-  “This inference is supported by John’s further evidence that he sold the units at a loss and there was nothing to repay the Father.  Effectively he meant that there was no need to repay the Father.  If the Father’s funds were genuine loans and the units were John’s, John bears the investment loss.  He had to repay the loans even though the investment ended up in a loss.  If the Father were the beneficial owner, the risk of loss was on the Father.  There was, therefore, as he said, nothing to repay the Father because the units were sold at a loss.  This is another piece of evidence coming from John that the Father was the beneficial owner of [Units 501-503]”.

Discussion

44.With respect to the judge, the evidence did not support the above conclusion. First, what John said in evidence was:

“Now, the [tax] is really – the [tax] matter referred to in the letter was referring to tax shelter that was created by this borrowing because these three properties, three units, was creating a negative cash flow, so it created a tax shelter for me”[53]. (Emphasis added)

What John said was that by borrowing the down payment from the Father, which borrowing was an expense, he (John) would reduce his exposure to tax.  That was plausible and consistent with the documentary evidence where the Father said that for tax reasons, the funds were regarded as a loan (as opposed to a gift) to John.  The judge offered no explanation for coming to the opposite view in the absence of any evidence that it was the Father who was perpetrating a tax avoidance scheme.  Esther and WD have not unearthed any documents of the Father indicating such conduct.  And if the Father had some tax avoidance scheme in place for Units 501-503, there was no evidence explaining why that scheme was not also adopted for the other Canadian properties.

45.As for the reference to “under your [John’s] name”, the judge assumed from that that John was a nominee or trustee for the Father.  In making that assumption, the judge failed to consider the alternative of purchase in the name of a company controlled by John, such as 2810743 Canada Inc. 

46.Importantly, the judge did not take into account the fact that in the Father’s 1995 document, he referred to “the properties in Canada, which consist of eight units in Toronto King’s Court and five units at Vancouver Sundial Place” (emphasis added).  That quantity did not include Units 501-503, which at that time had not been sold.  That was a material fact which the judge failed to take into account.  Mr Li argued that the absence of Units 501-503 did not suggest that the Father did not regard them as his own, but there is no explanation why the Father should have excluded these particular units.  They were not referred to in the Father’s 1996 document or his 1997 document either.

47.The fact that John did not “contribute anything” – because he financed the purchase with funds from the Father and the bank – did not make the units any less his own.  The Father’s capacity as financier is supported by his referring to the “borrowing” and asking for an IOU from John.   

48.Finally, John’s evidence that he sold the units at a loss and there was nothing to repay the Father did not mean (as the judge held) that “effectively he meant that there was no need to repay the Father”.  It only meant that this was a loss-making project from which he did not have funds for repayment.  That that was John’s reason for not repaying the Father’s estate did not mean that it was not a loan in the first place.  

49.It is notable that Esther and WD knew about the sale of Units 501-503 at the time of the Med Agrmt, but did not include any reference to them in the Med Agrmt.  WD’s excuse was that the Med Agrmt was done in a hurry - “in haste”[54], but it is notable that when the promissory notes were brought up about a month afterwards, Units 501-503 were not also brought up.

50.In conclusion, the judge had failed to take into account all the above material facts when he held that Units 501-503 Sundial belonged to the Father, leading to his conclusion that John was liable to account for the “the down payments paid by the Father, the mortgage loans, the rental income, the repayments and the proceeds of sale with supporting documents”, and in not doing so, “John has demonstrated a totally irresponsible attitude”, with the consequence that “the services of a professional accountant are needed to investigate and estimate the amount which John has to account for”[55].  In light of the documentary evidence which referred to the funds from the Father being a loan, the waiver in Clause 12 applied to discharge John of liability to repay them.

51.Having said that, as with the issue of the two promissory notes, the consideration for this court is whether WD’s conduct regarding these Units warrants his removal as administrator. 

52.Further, as noted earlier, in the Notice of Appeal, John has asked for an alternative order that “WD be directed not to make any claim in relation to Units 501-503 ... Sundial”.  We will deal with this below. 

Other grounds     

53.We now turn to the other grounds of appeal regarding the judge’s dismissal of John’s application to remove WD as administrator.

54.We consider the issues of the legacies to John’s children and the ID card to be minor and would turn to the more substantial matter.

WD’s requirement of certified accounts as pre-condition to distribution to John

55.The relevant background is as follows. 

56.1.  In HCA48/2001, John had given an undertaking to the court (Lam J) on 25 June 2010 that he would provide the plaintiffs in that action (including Esther and WD) with “certified accounts relating to all Canadian assets” (“the 25.6.2010 Order”). That was in accordance with the Med Agrmt which provided that “the statement of accounts will have to be certified by a qualified account [sic] upon request of the other party.  The costs incurred in certifying the accounts will come from the pool of assets”.  (Emphasis added).

56.2.  John then instructed Pricewaterhouse Coopers LLP Canada (“PwC”) to prepare the accounts.

56.3.  In a letter dated 9 August 2010 (“the PwC 9.8.2010 document”), PwC expressly “certify” that they have prepared personal and trust income tax returns for the estates of the Father and the Mother in accordance with the prevailing Canadian tax laws ...”  They went on to state:

“... We certify that we have prepared these tax returns in accordance with the prevailing Canadian tax laws pursuant to Mr John Chang’s instructions. This certification is made in compliance with the undertaking given by Mr John Chang to the Court at the hearing on June 25, 2010.

Information for this ten year period was provided, in summary form, by Mr John Chang together with supporting documents of a volume in excess of a suitcase load over 20 kg. This information was used to prepare the above noted income tax returns. We have not been requested in this engagement to perform an audit or a review engagement in respect of this information. Accordingly, we have not expressed any assurance thereon”. (Emphasis added).

57.1.  On 4 November 2011, Esther and WD (among others) issued a summons for “orders/directions” in the carrying out of (among other things) the Med Agrmt and the 25.6.2010 Order

“(without prejudice to any claim or relief which [Esther and WD] may have against [John] for any non-compliance on the part of [John] with the Med Agrmt”. (Emphasis added).

57.2.  One of the orders in Esther and WD’s summons was:

“Orders and directions related to certified accounts in respect of all incomes received by [John] from the Canadian properties belonging to the late Mother and all expenditure in respect of the Canadian properties since the death of the late Father and the consequences due to his non-compliance with the [Med Agrmt]”. (Emphasis added).

58.1.  When the matter came before Lam J on 29 November 2011, it is crystal clear from the transcript of the hearing that Lam J took the view that:

(1)  the 25.6.2010 Order required only certified accounts, not audited accounts, which was accepted by Esther and WD’s then counsel[56]; and

(2)  although the PwC accounts were in the form of tax returns, “if the tax returns contain accounts, that would be an account.  And that has been certified”[57]. 

58.2.  It is notable that Lam J did not rule that John had failed to comply with the Med Agrmt, nor did he make an order that John should provide audited or certified accounts.   Nor did he order John to pay the costs of the summons.

59.However, an order was made by consent whereby “supporting documents including those provided to showing all items and expenditure of the Canadian Properties be sent to Mr Stan Lang [WD’s accountant] as soon as possible but within 21 days. ...” (“the Consent Order”).  This was as a result of John’s solicitor informing Lam J that he (John) had nothing to be concerned about as to giving access to the primary documents to Mr Lang, and in fact he had given scanned copies to Esther[58].  Costs were agreed to be paid from the estates. 

60.1.  Notwithstanding what transpired before Lam J on 29 November 2011, WD persisted in his demands that John provide “certified accounts”[59].  John replied in an email on 9 November 2013 as follows:

“Regarding the certified account, it has been explained many times to you before by me, by the accountant at [PwC] by your own accountant in Vancouver Mr Lang that the statement of accounts provided to you on June 30, 2009 was good enough for filing income tax. The next level up is to have an audited report which would cost over hundred thousand dollars. Audited report is not necessary for filing income tax as explained by [PwC]. If you have any doubt in the statement, you can ask me for explanation or tell Mr Lang to scrutinize the statements. Further, the Canadian Revenue Agency will audit the tax returns as a standard procedure. Your blunt refusal to acknowledge the statements provided to you is viewed as deliberate breach of performance order to carry out the mediated terms. Can you make it simple and let CRA do the audit?”

60.2.  In short, John said that he had already provided WD with certified accounts, that the next level up would be audited accounts (which the court had not ordered), and that in any event, the CRA would perform an audit which would pick up any problematical items.

60.3.  WD did not assert in response to John’s email that the order was for audited accounts.  However, he persisted in requiring “certified” accounts in 2014 and 2015, notwithstanding what had transpired before Lam J on 29 November 2011.

The judge’s findings

61.The judge took the view that John had failed to provide WD with certified accounts[60]. That was because the judge said “to my knowledge, the term ‘audited account’ and ‘certified account’ are used interchangeably in loose language”[61] (emphasis added).  Commencing from this point of view, he made a number of findings critical of PwC and John and his solicitor, set out below.  

Discussion

62.With respect to the judge, the source of his knowledge that ‘audited account’ and ‘certified account’ are synonymous was not identified.  He did not say it was a matter of which judicial notice could be taken.  And clearly that was not consistent with Lam J’s understanding as shown in the passages from the transcript of the hearing of 29 November 2011, which would (or should) have informed the parties in their subsequent conduct.    

63.Although the judge (DHCJ To) had access to the transcript of the hearing before Lam J[62], he failed to take into account the fact that if Lam J had considered that the PwC accounts did not qualify as certified accounts, Lam J would have made an order against John for non-compliance.  He did not.  The judge (DHCJ To) said that Lam J did not make any ruling or determination, and he “might well have changed his mind after hearing all the submissions or upon a critical examination of the documents”.  But the fact was that Lam J did not make an order against John for non-compliance, he made no order for John to produce a set of audited accounts or certified accounts, and he did not order John to pay the costs of Esther and WD’s summons. 

64.The Consent Order that supporting documents would be sent to Mr Lang cannot be interpreted as Lam J’s holding that the PwC accounts did not comply with the 25 June 2010 order.  And when the circumstances under which John’s solicitor proffered the supporting documents are taken into account, the judge was not justified to infer that “even John accepted that what he had furnished in purported performance of his 2010 Undertaking was not sufficient to qualify as ‘certified account’ ...”[63] (emphasis added).  As can be seen from the transcript of the hearing before Lam J, Lam J had rejected that submission on the part of Esther and WD.  The judge’s conclusion that “... John’s counsel [solicitor] pulled wool over the court’s eye at the hearing on 29 November 2011 and led Lam J to make the adverse comments against WD ...”[64] arose from his view (unsupported by expert evidence) that ‘audited account’ and ‘certified account’ are synonymous.

65.Unfortunately, given this view and the failure to properly consider what had transpired before Lam J on 29 November 2011, the judge then went on to make unduly critical findings which were not justified on the evidence, including:

-  the PwC 9.8.2010 statement was a “badly written misleading statement”, because the judge thought (contrary to Lam J[65]) that anything done in the form of a tax return could not contain accounts;

-  interpreting PwC’s 9.8.2010 statement as saying that no “certification” had been done (contrary to their express statement), when what they had said was that no audit had been done;

-  PwC’s reference to 20 kg of supporting documents was “just a smokescreen” because they had not done an audit, and PwC’s “skillfully written letter” “gives an unwary reader a false impression that PwC had referred to the 20 kg of supporting documents in preparing the tax returns which were therefore equivalent to certified accounts”, and that “it is intriguing that John could have manipulated a reputable international firm of accountants like PwC to write such a misleading letter” (emphasis added). 

These harsh comments arose from the judge’s own view that certified accounts were synonymous with audited accounts, were contrary to Lam J’s view as expressed at the 29 November 2011 hearing, and when there was no expert evidence to this effect to justify it.  More importantly, fairness required that it should be put to John in cross-examination that he had “manipulated” PwC to write their 9.8.2010 which the judge described as “misleading”[66]. 

66.Coming back to the factual narrative, WD continued to insist in 2014 and 2015 that John had failed to provide “certified accounts”, treating them as a pre-condition to distribution. 

67.Having said that, Mr Li is right in saying that even if the judge was wrong in his decision on the “certified accounts”, the Consent Order went beyond that issue, as it referred to “supporting documents including those provided to [PwC] showing all items of income and expenditure of the Canadian Properties be sent to Mr Stan Lang as soon as possible but within 21 days” (emphasis added).  At §§94-106 and §§113-122 of the Judgment, the judge found on the facts that John had failed to do so.  Mr Smith has not shown this court that any of those findings were not supported by evidence, or how those findings were plainly wrong.

68.On appeal, Mr Smith has submitted that on the basis of WD’s position regarding the promissory notes, Units 501-503 and the “certified accounts”, John should be entitled to an order removing WD as administrator.  Whilst we agree that WD’s latter position on the promissory notes was not only incorrect but also unfair to John, his position on Units 501-503 was, though incorrect, not such as to show a want of honesty or reasonable fidelity.  As for the “certified accounts” issue, the point is that, even if John were right on the provision of “certified accounts”, having agreed to the Consent Order, he should have complied with it and the judge has found that he had not done so.

69.Weighing these matters in the round, and in light of the fact that the judge found (and Mr Smith accepts[67]) that WD had in substance completed administration of the Mother’s estate in Hong Kong, and that John accepted that there would be no need to remove WD as administrator upon his receipt of relevant bank statements and ledgers, we would dismiss the orders sought in the Notice of Appeal pertaining to WD’s removal.  However, given our views as to the promissory notes and Units 501-503, we would give the directions sought at §4(a) and (b) of the Notice of Appeal.

Removal of John as trustee of Canadian properties

70.We now come to John’s appeal against his removal as trustee of the Canadian trust.  Mr Smith submitted that the rule in British South Africa Company v Companhia de Mocambique[68](“the Mocambique rule”) provides that Hong Kong courts have no jurisdiction to determine (among other things) disputes concerning title to or interests in real property overseas. Mr Li does not dispute that, but he submits that the present case falls within the following 3 exceptions to that rule, viz.

(1)  the claim is based upon a personal obligation arising between the parties, as it arises from the Med Agrmt;

(2)  this is a case concerning administration of the Mother’s estate which concerns moveable or real property in Hong Kong as well as real property overseas; and

(3)  the issue of title to the Canadian Properties is merely incidental, as the relief sought is John’s removal as trustee.

The judge accepted exceptions (1) and (2). 

Discussion

71.1.  As encapsulated in The Conflict of Laws in Hong Kong[69], “where the claim is based upon a ... fiduciary obligation or other obligation which does not depend for its existence on the law of locus of the immoveable property, the Mocambique rule does not bar the taking of jurisdiction”. Thus, a Hong Kong court has jurisdiction in relation to foreign land where the claim is based on a personal obligation arising from e.g. a trust. 

71.2.  In light of Clause 4(a) of the Med Agrmt in which John undertook obligations “to be accountable as trustee”, we consider the 1^st exception is applicable.  We do not consider it necessary to discuss other possible exceptions.

72.1.  Mr Smith then questioned WD’s locus when the beneficiary of the trust was the Mother.  However, with the Mother’s death, the beneficiary was her estate. Under Clause 9 of the Med Agrmt, the parties agreed that WD would be appointed the administrator of the estates of the Father and the Mother.  Although WD has not been appointed administrator of the Mother’s estate (which the judge found was due to John’s non-cooperation), an administrator has power to act before the grant of LA if it is necessary to preserve and protect the estate[70].  If necessary, a limited grant could be sought, so this is a mere technicality.

72.2.  In this respect, the judge found that John was in breach of trust in, among other things, receiving income and failing to render proper accounts.  In any event, John has indicated that he has “no particular desire to continue to be in any way overseeing the properties in Canada whether as trustee or otherwise, and would be quite happy for administrators to be appointed”[71].

Appointment of WD as administrator

73.Finally, we come to John’s appeal against the order appointing WD as administrator. This can be dealt with quickly. 

74.It was first submitted that the judge should not have entertained the counterclaim as it was made late.  We do not consider there is anything in this submission, as it was a matter of case management by the judge.

75.Second, it was submitted that issues relating to the Med Agrmt should be litigated in HCA48/2001 as the Tomlin order was made in those proceedings. That is a surprising submission as it was John who commenced these miscellaneous proceedings, rather than resort to HCA48/2001.

76.Third, it was submitted that the judge erred in taking into account John’s “post-agreement conduct” in finding that his evidence was “amoeboid”[72]. We do not think it is necessary to deal with this submission as it is clear to us from the construction of Clause 9 of the Med Agrmt that the parties had agreed that WD should be the administrator of both parents’ estates in Canada and Hong Kong.  The Med Agrmt was intended to resolve all their disputes in the past and to agree to a settlement of all the family assets including but not limiting to the properties under the estates of the Father and Mother ... Canadian Properties[73], Hong Kong Properties hereinafter mentioned” (emphasis added). It would make no sense for Clause 9 to be construed narrowly to confine WD’s appointment in the absence of any reason to do so.

Order

77.1.  For the reasons set out above, we would dismiss the appeal save for giving directions as per §4(a) and (b) of the Notice of Appeal.

77.2.  To reflect the appellant’s partial success, we would set aside the Judge’s order as to costs and make an order nisi that the appellant pay 50% of the costs below and of this appeal on a party and party basis, with certificate for two counsel.

Hon Barma JA:

78.I agree with the judgment of Yuen JA.

Hon L Wong J:

79.I agree with the judgment of Yuen JA.

Mr Clifford Smith SC and Mr Tom Ng, instructed by Norton Rose Fulbright Hong Kong, for the applicant

Mr C Y Li SC and Mr Avery Chan, instructed by Yung, Yu, Yuen & Co, for the 1^st and 2^nd respondents